Costa Rica cuts contributions to political campaigns to contain deficits

Costa Rica put into effect on Wednesday a law that severely cuts state contributions to political parties for the 2022 electoral campaign, as part of the country’s effort to contain its explosive fiscal deficit.

The president, Carlos Alvarado, signed the “Savings Law for the 2022 Political Campaign” (Ley de ahorro para la campaña política de 2022), which reduces state contribution to parties from 0.19% of GDP to 0.08%, through which the treasury would save around $60 million.

The law will apply for the presidential and legislative elections of 2022 and for the municipal elections of 2024, according to the initiative approved by the Legislative Assembly (parliament).

“This signature represents the union of political forces with a view to the common desire to give the country a break in its public finances through savings,” Alvarado said in a ceremony at the Presidential House.

The law comes into force at a time when Costa Rica is negotiating with the International Monetary Fund (IMF) for $1.75 billion in financing, in exchange for a program aimed at containing the fiscal deficit, which reached 8.3% of GDP in 2020 as effect of the Covid-19 pandemic.

The country intends to contain the fiscal shortfall through a series of spending cuts and new income, such as the reduction in contributions to political parties and taxes on luxury homes and income generated by Costa Ricans abroad.